Pete owns a shoe-shine business. Which of the following costs would be implicit costs? i) shoe polish
Ii) rent on the shoe stand
Iii) wages Pete could earn delivering newspapers
Iv) interest that Pete's money was earning before he spent his savings to set up the shoeshine business
A) i) and ii) only
B) iv) only
C) iii) and iv) only
D) i), ii), iii), and iv)

Question

Pete owns a shoe-shine business. Which of the following costs would be implicit costs? i) shoe polish
Ii) rent on the shoe stand
Iii) wages Pete could earn delivering newspapers
Iv) interest that Pete's money was earning before he spent his savings to set up the shoe­shine business
A) i) and ii) only
B) iv) only
C) iii) and iv) only
D) i), ii), iii), and iv)

Quizplus · Accepted Answer

Implicit costs are the opportunity costs of resources already owned by the firm or the owner. Wages that Pete could have earned delivering newspapers and the interest that Pete's money was earning before he spent his savings to set up the shoe-shine business are both examples of implicit costs because they represent the value of resources already owned by Pete that he chose to allocate to his business. Shoe polish and rent are explicit costs that require a direct payment or expense.

Pete Owns a Shoe-Shine Business